(Reuters) —New data showing an experimental
AstraZeneca lung cancer drug shrank tumors in more than half of
patients gives the British group fresh ammunition to argue that
Pfizer's takeover offer undervalues it substantially.

Britain's second-biggest drugmaker has rejected a $106 billion
approach from its U.S. rival Pfizer, arguing that it has a bright
future as an independent firm due to a promising pipeline of cancer
and other drugs.

Its new lung cancer drug, known as AZD9291, targets a genetic
mutation that helps tumors evade current treatments. AstraZeneca
believes it could sell as much as $3 billion a year.

Results from an early-stage Phase I trial of the drug, released late
on Wednesday, showed AZD9291 shrank tumors in 51 percent of
patients. Tumors shrank in 64 percent of patients found to have the
mutation, known as T790M, which develops in about half of lung
cancers that become resistant to drugs known as epidermal growth
factor receptor (EGFR) inhibitors.

Savvas Neophytou, an analyst at brokerage Panmure Gordon, said the
results were impressive and "AstraZeneca's management is right to be
excited by the pipeline". AstraZeneca shares were 0.5 percent higher
in a flat London market by 0745 GMT.

EGFR drugs, such as Roche's Tarceva and AstraZeneca's own Iressa,
are used to treat various solid tumor cancers with mutated or
overactive EGFR. Around 15 percent of patients with non-small cell
lung cancer, the most common form of the disease, have mutations in
the EGFR gene.

But most of them will eventually become resistant to available EGFR
inhibitors, said Dr Pasi Janne, professor of medicine at Dana-Farber
Cancer Institute and Harvard Medical School in Boston and the
study's lead investigator.

"The issue of drug resistance has been the bane of chemotherapy
treatment of cancer for decades," Dr Peter Yu, president-elect of
the American Society of Clinical Oncology (ASCO), said during a
press conference.

AZD9291 is one of several new drugs flagged by AstraZeneca last week
in a bid to convince investors of the strength of its experimental
pipeline.

Chief Executive Pascal Soriot told Reuters that data presented at
this year's annual ASCO meeting would demonstrate how AstraZeneca
was developing new therapy regimens that would change the way cancer
was treated.

The British company forecasts that peak annual sales of the cancer
drug could reach $3 billion, which is more than the $1 billion to $2
billion currently predicted by analysts.

The Phase I trial, featured ahead of the meeting of ASCO later this
month, involved 199 patients with advanced non-small cell lung
cancer with EGFR mutations whose disease worsened despite treatment
with a current EGFR inhibitor.

The most common side effects seen in the trial included diarrhea and
rash, but researchers said the level of toxicity was less severe
than is seen with available EGFR inhibitors.

AstraZeneca is currently conducting a Phase 2 study of AZD9291 in
patients with the T790M mutation at a daily dose of 80 milligram,
which it said could enable accelerated regulatory filing in the
second half of next year.

AZD9291 has been granted "breakthrough" status by the U.S. Food and
Drug Administration as a second-line therapy for non-small cell lung
cancer. AstraZeneca will also study the drug as an initial treatment
for eligible lung cancer patients.

IMMUNE SYSTEM DRUG

Investors are keen to get a look at other cancer data from
AstraZeneca due to be presented at the ASCO meeting.

The company's MEDI4736 has the potential to become one of the first
in a new class of drugs known as anti-PDL1 treatments that fight
cancer by boosting the immune system. It is initially being tested
as a treatment for non-small cell lung cancer and AstraZeneca said
data to date had shown "durable clinical activity and acceptable
safety".

AstraZeneca has forecast peak sales for MEDI4736 of $6.5 billion,
including combination therapies, compared with analyst estimates of
$2 billion to $7 billion.

An AstraZeneca spokeswoman said updated data from trials of MEDI4736
will be presented at the conference at the end of May.

Data from another of the company's experimental cancer drugs,
olaparib for ovarian cancer, will be featured at the ASCO meeting.
AstraZeneca has forecast peak olaparib sales of $2 billion, compared
with consensus analyst estimates of $1.5 billion to $3 billion.

It has also had encouraging results combining olaparib and another
drug called cediranib.